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Financial Statements, Accounting Year, Property Plant, Trade Receivables, Cash at Bank, Ordinary Share Capital, Tax Payable, Trade Payables, Retained Earnings, Goodwill Arising. Given points represent accounting and finance exam paper.
Typology: Exams
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Ionawr 2012 January 2012
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The following are the financial statements of the parent company, XX plc, a subsidiary company, YY plc, and an associate company, ZZ plc, for the accounting year-end 31 December 2009.
XX Plc £
YY plc £
ZZ plc £ ASSETS Non-current Assets Property Plant & Equipment 69120 63360 45504
Investment in YY plc 80640 Investment in ZZ plc 23040 Current Assets: Inventories 69120 34560 20736 Trade Receivables 74880 40320 20736 Current account – YY plc 8640 Current account – ZZ plc 1728 Cash at bank 13824 4032 3456 Total Assets 340992 142272 90432
Ordinary share capital 14400 34560 28800 Additional paid-in capital 17280 11520 6912 Retained earnings 86400 69120 28800 247680 115200 64512
Current Liabilities Trade Payables 76032 14400 19584 Tax Payable 17280 4032 4608 Current account – XX plc ________ 8640 1728 Total equity and liabilities 340992 142272 90432
Additional information:
Question Continues Overleaf
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Question 2 – Answer all parts
a) Discuss important characteristics of intangible assets for financial reporting purposes. (10 marks) b) By referring to relevant IFRS, explain the initial and subsequent accounting measurements of intangible assets. (10 marks)
c) Compare and contrast the accounting treatments of research and development under the IASB standard and the US GAAP. (10 marks) (Total 30 marks)
Question 3 - Answer both parts a) and b)
Newton plc operates under ideal conditions of uncertainty. Its cash flows depend crucially on the clients’ demand. On January 1, 2009, Newton plc acquired equipment to be used in its operations. The equipment will last two years, at which time its salvage value will be zero. Newton plc financed the equipment purchase by issuing ordinary shares.
In 2009, net cash flows will be £1,400 if the demand is favourable and £400 if it is unfavourable. In 2010, cash flows will be £1,800 if the demand is favourable and £600 if it is unfavourable. Cash flows are received at year-end. In each year, the probability that the demand is favourable is 0.3 and 0. that it is unfavourable. The interest rate in the economy is 6% in both years.
Newton plc pays a dividend of £100 at the end of 2009.
a) In 2009, the demand is favourable. Prepare a balance sheet as at the end of 2009 and an income statement for 2009. (15 marks)
b) If we attempt to apply the present value model under uncertainty to the more realistic conditions under which accountants operate, the expected present value calculations become unreliable. Explain why. (15 marks) (Total 30 marks)
Question 4 - Answer both parts a) and b)
a) Define goodwill on consolidation, and compare financial reporting treatment between goodwill on consolidation and internally generated goodwill. (10 marks) b) Discuss alternative financial reporting approaches for goodwill arising from consolidation. (20 marks) (Total 30 marks)
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Question 5 Answer both parts a) and b)
a) Referring to academic papers, explain the predictions made by positive accounting theory. (15 marks) b) Discuss the opportunistic and efficient contracting perspectives of positive accounting theory. (15 marks) (Total 30 marks)
Question 6 – Answer both parts a) and b)
The IASB Framework for the Preparation and Presentation of Financial Statements does not prescribe a specific approach to measurement. However, in recent years accounting standards have been published which have shown a movement away from historical costs and a movement towards the use of fair values.
a) Why do you think this is occurring? (15 marks)
b) Further, why do you think that conceptual frameworks have not been amended to suggest an alternative to historical costs, such as the use of fair values? (15 marks) (Total 30 marks)
